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SoCal Hospitals Work On Way to Get Around Physician Employment Ban

 |  By cclark@healthleadersmedia.com  
   May 17, 2010

A group of 157 Southern California hospitals is trying to get around the state's ban against the corporate practice of medicine by making a way rural and small hospitals could create special foundations that would hire doctors, in some ways similar to Kaiser Permanente and other larger systems.

"Right now, the larger hospitals have the ability to create these medical foundations, and most of them do so, such as Catholic Healthcare West, Sutter Health, Scripps, and Sharp," says Jim Lott, executive vice president of the Hospital Association of Southern California, which includes Los Angeles, Orange, Santa Barbara, Ventura, Riverside, and San Bernardino counties.

"We want to give all hospitals the leverage to do this, too," Lott says. "Some of our hospitals are desperate for physicians."

"We're not talking about a super-mega foundation either," Lott says. "Hospitals won't run the foundations, nor will the foundation be run by the Hospital Association."

He adds that the idea also could ease into bundled payment and accountable care organization integration between hospitals and physicians, two parts of healthcare reform legislation that are destined to be "game-changers" for the hospital-physician relationship.

"When they're able to provide the full spectrum of care, and share in some of the savings, their incentives align and the cost of care goes down," Lott says.

Lott envisions a "separate organization with a separate governing body that is not a shell company, but one that will look like all the other medical foundations that we have in California."

Right now, state law allows hospitals to create such foundations only if they each have at least 40 physician members and 10 of those physicians are specialists, conditions that Lott termed "onerous." That's virtually impossible for smaller community hospitals of 200 beds or fewer, he explains.

The discussion of allowing smaller and rural hospitals to pool together to create such a foundation is in part a response to the hospital association's failure to get legislation passed that would allow hospitals that have trouble recruiting physicians – either because they are small, in remote locations or in areas with large numbers of Medicaid or uninsured patients.

The powerful California Medical Association has long opposed any bill introduced that would modify the state's ban against the corporate practice of medicine.

The CMA apparently is opposed to the pooled hospital foundation idea as well. Dustin Corcoran, CEO of the California Medical Association, told the Wall Street Journal that such foundations would give hospital groups too much control, and said they would in effect be creating medical groups.

Also opposed is the California Association of Health Plans, which worries that such an entity would unify efforts to contract with health insurance companies, giving them more control over reimbursement rates.

Lott estimates that about 20 to 35 of the 157 HASC-member hospitals would have to sign up for the pooled foundation model to work. And it may be difficult to get doctors to agree as well.

"They'd be giving the foundation a lot of control over their practice . . . of their billings and accounts receivable, and they may not want to give that up," Lott says.

California is one of only five states, including Ohio, Iowa, Texas, and Colorado that do not allow hospitals to directly employ physicians. Only county hospitals and academic medical centers are granted exceptions.

The fear is that hospitals that employ doctors can dictate to them what kind of care to provide patients based on economic factors, not medical need.

But without the ability to hire doctors, some smaller hospitals in remote parts of California are unable to provide residents in their area with oncologists, gastroenterologists, anesthesiologists, and many other specialist and primary care practitioners, forcing those patients to travel long distances to get care they need or go without.

A pilot program approved several years ago that allows six physicians to be hired is set to expire this year.

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